Major Western donors are reportedly pushing for the establishment of
a customs union for the East African region, which would make it
possible for Ugandan importers to pay their taxes at the Kenyan port of
Mombasa. The commissioner in charge of tax policy at Uganda's
Ministry of Finance, Planning and Economic Development, Mr Patrick
Ocailap, said that The World Bank had approved a study for the
establishment of such a union, with a structure similar to that of the
South African Customs Union (SACU).

The commissioner said that the concept of Ugandan importers paying
their taxes at the Kenyan port had been under discussion since April
last year, but that its implementation would not be possible before
certain issues, such as the convertibility of the Kenyan shilling, were
sorted out.

He asked: "For example, Uganda operates a cash budget and if
Kenya collects the taxes and remits the money at a loss because of
differences in exchange rates, who will bear the loss? And in case of a
disagreement, who does the arbitration?" The commissioner also said
that collecting taxes at Mombasa would go a long way towards curbing
smuggling and the diversion of transit goods. He refused however to
speculate on exactly when the new system is likely to be in place.

Items such as oil, fuel and cigarettes are most pone to smuggling.
Industry estimates put the government's annual revenue losses
through cigarette smuggling at between Ushs9bn ($7.5m) and Ushs12bn
($10m). Lower tax rates in both Kenya and Tanzania have led to increased
cigarette smuggling, as smugglers are able to sell their products in
Uganda at half the price. Over 50% of the retail price of every
cigarette is paid to the government in taxes.

The smuggling of uncustomed goods has been a regional problem for
years. Since the setting up of the East African Cooperation in 1966
revenue authorities from the three countries have been looking into ways
and means of tackling the problem jointly. Most recently, a series of
joint meetings have been held in the last year or so to exchange
information on the harmonisation of taxes and tariffs and the collection
of import duties.

Uganda

Being a landlocked country and depending heavily on the Mombasa port
for imports and exports, Uganda experiences the highest levels of
smuggling in the region. Observers say smuggling intensified when the
Uganda Anti-Smuggling Unit was disbanded in mid-1996. Until the
formation of the new Revenue Protection Service (RPS) in November last
year, smuggling increased significantly. The Ugandan Minister for
Finance, Planning and Economic Development, Mr Gerald Sendaula, recently
conceded in an interview that the government was losing billions through
smuggling.

Tanzania

Meanwhile the high cost of oil products in Tanzania has spurred a
booming illegal trade in petrol, paraffin and diesel from the
country's southern border with Malawi. Reports says the Tanzanians
living along the river Songwe, which marks the border between the two
countries, can be seen paddling back and forth with contrabands to
nourish the lucrative market. The illegal trade is centred mainly in the
border town of Kyela in the Mbeya region.

Vendors of fuel get large profit margins even though they sell their
smuggled kerosine at prices much lower than those that are found in the
rest of the country. Petroleum products are bought mainly at filling
stations at the Lake Nyasa port of Karonga in Malawi, some 45km from the
border, and at the Chirumba jetty, where the products are even cheaper.
The price per litre of kerosine at the jetty, for example, is $0.14
compared to $0.64 in Tanzania. Vendors of smuggled petrol at Kyela have
disclosed that although their prices are higher compared with those in
Malawi, they are still cheaper and thus more popular than prevailing
prices in Tanzania, where a litre of petrol in Kyela sells for
Tshs485-495 ($0.72-0.73).

The business is so lucrative that petty * traders who venture into it
with as little as a $30 stake can make handsome returns. "In the
past, we used to pass through the customs border post and pay taxes on
the petroleum products.

However, Tanzania Revenue Authority officials are now seizing these
products, forcing us to resort to the use of canoes across the river
Songwe," remarked one of the vendors.

* The East African Finance Ministers recently met in Arusha to map
out strategies for the eradication of smuggling. Simeon Nyachae of
Kenya, Daniel Yonda of Tanzania and Sam Kuteza of Uganda, jointly asked
the respective revenue authorities to work together to enhance
anti-smuggling activities.

It would seem that the era of intra-regional cooperation is fast
approaching.

COPYRIGHT 1998 IC Publications Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.